Monday Morning Quarterback

(Monday, April 8, 2024)

A powerful Wednesday morning earthquake that rocked Taiwan (one of the best-prepared locations in the world for temblors), could provide crucial lessons for Southern California. The quake, measured at magnitude 7.4 by the U.S. Geological Survey, killed at least nine people and injured hundreds on the island (which is about 1? times the size of Vermont). Of course, Taiwan is no stranger to powerful and damaging earthquakes, and we can learn from them. For example, retrofitting old concrete buildings. In Los Angeles, structural engineers have long warned about the risk of un-reinforced concrete buildings collapsing during a major quake, as happened during the 1971 Sylmar and 1994 Northridge quakes. Still, many older buildings across California have yet to be updated to the latest standards, leaving them vulnerable to damage or collapse during a major earthquake. In Los Angeles, about 6,000 buildings have been identified as in serious need of a retrofit, according to the Los Angeles Times. Depending on the type of building, retrofit fixes include adding such supporting elements as steel frames or beams, installing new concrete walls and repairing vulnerable welds. Another striking similarity between Los Angeles and Taiwan is the soil condition. The Los Angeles Basin, just like Taipei, is basically “a big bowl of loose sediment” that can amplify movement. As in California, earthquake early-warning alerts?in Taiwan go out only to people in areas that could be affected by severe shaking. Limiting the scope of the early-warning alerts prevents people from overreacting in areas at lower risk of damage. While California has a robust network of seismometers in the heavily populated Bay Area and Southland regions, coverage in the Mojave Desert and the Sierra Nevada is lacking. The last earthquake above 7.0 in California was a 7.1 temblor in Ridgecrest?in 2019. It killed one person and caused $5.3 billion in damage. The only thing that prevented a far greater toll was the geologic good luck that it happened in an area less densely populated than California’s major cities. Seismologists have long urged Californians to prepare for the “Big One” (defined as a quake of at least a magnitude 7.8 – 2 ? times?larger than the one that hit Taiwan) along the southern part of the San Andreas Fault, which runs nearly the length of our state. Bottom Line: Earthquakes are inevitable, but disasters don’t have to be.

Office Vacancy Rate Nears 20% to Set New Record. Vacancies rose to a record 19.8% in 2024 Q1, Moody’s Analytics said in a preliminary report Monday, from 19.6% in the fourth quarter of 2023. Despite the increase, the firm said that the early data points to a stable quarter for commercial real estate. Here’s why. Tenants continue to downsize with the hybrid work model showing more staying power, battering the office sector. The Federal Reserve’s interest rate hiking cycle has also wounded commercial real estate. The struggles in the sector have already sent vacancy rates past historic peaks in 1986 and 1991 with possibly room for more, according to Moody’s. The evolution of offices is similar to what’s happened with malls, where some thrive while others fail. Winners and losers will be determined by proximity to mixed-use neighborhoods and public parks instead of the typical office block. “There are spots of light and there are spots of extreme darkness.”?“This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.”

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New Single-Family Home Sales Decline. Not much to get excited about in the new home sales market, which took a breather in February following two consecutive gains. The good news is that the worst of the headwinds for new home sales are in the rearview mirror. The main issue with the US housing market has been affordability, so it’s not surprising that 30-yr fixed mortgage rates recently falling roughly one percentage point due to anticipation of Fed rate cuts in 2024 has helped sales activity over the past few months.?That said, higher financing costs are still taking a bite out of buyer’s purchasing power. Assuming a 20% down payment, the rise in mortgage rates since the Federal Reserve began its current tightening cycle amounts to a 19% increase in monthly payments on a new 30-year mortgage for the median new home.?The good news for potential buyers is that the median sales price of new homes has fallen nearly 20% from the peak in 2022.?However, it’s important to note that this drop in median prices is likely due to the mix of homes on the market including more lower priced options as developers complete smaller properties. Supply has also put more downward pressure on median prices for new homes than existing homes.?The supply of completed single-family homes is up nearly 175% versus the bottom in 2022.?This contrasts with the market for existing homes which continues to struggle with a low inventory problem (often due to the difficulty of convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic).?But this does not mean that housing is getting more affordable per square foot, with the Census Bureau reporting median prices on this basis up 45% from 2019 to 2022, the most recent data available. Though not a recipe for a significant rebound, more inventories giving potential buyers a wider array of options will continue to put a floor under new home sales.?One problem with assessing housing activity is that the Federal Reserve held interest rates artificially low for more than a decade. But with rates now in a more normal range, the sticker shock on mortgage rates for potential buyers is very real.?However, we have had strong housing markets with rates at current levels in the past, and as long as the job market remains strong, homebuyers will eventually adjust.

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Home Prices Reach New High. Home prices in the 20 biggest U.S. metros hit a new high as the housing market deals with an ongoing lack of homes for sale (see above). The S&P CoreLogic Case-Shiller “20-City House Price Index” rose 0.1% in January compared to the previous month.?Home prices in the 20 major U.S. metro markets were up 6.6% in the last 12 months ending in January. A broader measure of home prices, the “National Index,” rose 0.4% in January and was also up 6% over the past year. The annual increase was the fastest since 2022, S&P says. All numbers are seasonally adjusted. The 20-City Index and the National Index are at an all-time high.?San Diego posted the biggest year-over-year home-price gains in the nation in January. Prices were up 11.2%.?All 20 major markets reported yearly gains. Home prices grew the slowest in Portland, by 0.9%. For the record, Los Angeles sits at 8.6%. A separate report?from the Federal Housing Finance Agency also showed home prices fell 0.1% in January from the last month, but were up 6.3% in the past year. The FHA also noted that home prices fell for the first time since August 2022. The median price of a resale home was $379,100 in January, and a newly built home was $414,900. Over the last two years, homeowners have been the biggest beneficiaries of low inventory, sitting on ultra-low mortgage rates while seeing their homes appreciate significantly. And they will likely continue to see home price gains as the housing market faces a shortfall of resale inventory. Home buyers on the other hand are seeing affordability erode as rates and prices rise.?

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Why Are So Many Restaurants Closing in Los Angeles? Over the past year over 50 restaurants closed, among them Bar Moruno?in Silver Lake, which barely made it past the year-mark there after operating for five years at the Original Farmers Market; nine-year-old seafood restaurant the Anchor in Venice closed; in Culver City, chef Jason Neroni’s Best Bet pizzeria closed after only five months; Animal in Fairfax closed after a decent 15-year run; Angler at the Beverly Center closed a few months after renovating, and that followed a lackluster couple of years. The list goes on and on, as do the closures. Los Feliz’s Atrium seems to be another recent casualty. Bewildered customers are posting on Reddit, wondering why the door is closed and phones are unanswered (I tried). Another recent casualty, West Hollywood’s Charcoal Sunset closed after only opening in July 2023 in the 9000 Sunset Blvd. building opposite the Roxy. Or rather, “suspended operations,” as a press statement read. Might it reopen, then? “Don’t get me wrong, I want everyone to be earning a fair wage,” Citrin says. “People need to earn a fair wage. But from 1990 to 2016 minimum wages rose from $4.50 to $10. Then from 2016 to 2023 it jumped up 70%.” Another jiggle saw one the nation’s biggest names, Jean-Georges Vongerichten disappear from inside the Waldorf Astoria Beverly Hills, ending a six-year run. Vongerichten still helms the hotel’s extremely popular Rooftop by JG, however. That playground is the charming, pretty Espelette, developed and overseen by Benjamin, and a big change from the stark masculine grandeur of Jean-Georges Beverly Hills. The October closure of high-profile neighbor The Palm (home of the power lunch), which opened in 1975 in West Hollywood before moving to North Canon Drive in 2014, was a shock. All in all, maybe the great American social activity, eating out, may be on the wane.

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Once High-Flying Founder of Bird Scooters Sells His Mansion at an $11 Million Loss. The bird has flown the coop! Travis VanderZanden has finally flown the very fancy coop—but he may also have flown a bit too close to the sun. Records show that after three years on and off the market, the controversial and once high-flying tech entrepreneur’s residential albatross in Bel Air?has finally sold to a non-famous buyer for just $10.8 million (nearly $11 million less than the $21.7 million he paid comedian Trevor Noah for the contemporary house 3.5 years ago). It’s probably not surprising that VanderZanden would be very motivated to unload his snazzy mansion. A former Lyft COO and Uber vice president, VanderZanden is the founder and former CEO of?Bird, the once-popular and nationwide electric scooter-rental service that was valued at $2.5 billion during its 2019 heyday. By 2020, Bird had been hard hit by the Covid-19 pandemic; in December 2023, the company declared bankruptcy. But despite the huge amount of money it cost him, it remains unclear if VanderZanden ever actually lived in the Bel Air house. He bought the hilltop mansion in August 2020, paying $21.7 million. For much of the next six months, the place was undergoing renovations. But in April 2021, VanderZanden somewhat abruptly moved to Miami and his L.A. house was back up for grabs, listed at an overly optimistic $25 million. By early 2023, the property’s asking price had sunk to $18.9 million. Previously owned by Trevor Noah, the glassy house was vacant for much of VanderZanden’s 3.5 years of ownership. Sited atop a 1-acre promontory overlooking the Bel-Air Country Club golf greens, the?spec-built house was completed in 2019 and first sold for $20.5 million to Noah that same year. Inside, the two levels of sun-drenched interiors span a total of about 10,000 square feet, with six bedrooms and 7.5 bathrooms. Highlights include a stone wet bar showcasing a 500-gallon saltwater aquarium, a cigar room, a den with a marble fireplace, a movie theater and separate quarters for a live-in housekeeper or other staff member.

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To Win A World Series, Teams Need To Spend Big.?Its time for baseball! ?And with the return of baseball comes the age-old question of the exorbitant monies spent by teams to be competitive. For example, in the span of two weeks, our Dodgers awarded more than $1 billion to just two players by signing Shohei Ohtani?(10 years, $700 million) and Yoshinobu Yamamoto?(12 years, $325 million) in free agency. The $70 million average annual value of Ohtani’s deal (albeit heavily deferred) is larger than the entire opening day payrolls of the A’s and Orioles, according to Cot’s Baseball Contracts. Yamamoto’s contract, meanwhile, is the largest ever for a starting pitcher despite the fact he has never thrown a pitch in MLB. Naturally, such astronomical expenditures have led to calls for a salary cap to be instituted in MLB to ensure competitive equity. It’s important to note, however, that a salary cap does not guarantee a more level playing field. With no salary cap, MLB has had 16 different World Series champions since 2000. That’s more teams that have won a title in that time than the NBA (11), NFL (13) or NHL (13), all of which have salary caps. What’s more, every MLB team made at least one playoff appearance in the last 10 seasons. The same cannot be said in the NFL or NHL despite both leagues having larger playoff fields. At the same time, however, It would be a mistake to suggest spending doesn’t matter. When it comes to winning a World Series, the teams that win are almost always among baseball’s biggest spenders. For three decades, it’s been shown time and again that it requires large sums of money?to amass both the stars and depth needed to win a World Series. The Dodgers know and recognize this, and are once again putting themselves in the strongest position possible to bring a championship to Chavez Ravine. Bottom line: Spending money doesn’t guarantee a championship, but teams that win championships almost always spend big.

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Rich People Hiking Mount Everest Now Forced To Bring Their Poop Back With Them. Mount Everest is basically a mountain of human dung. This happened because back in the good old days of summiting Mount Everest, when nature called, you could just shimmy down your pants, drop a deuce, and leave it right there on the snowy ground. But the problem with leaving poop on the highest peak in the world is that the environ's extremely cold temperatures are not conducive to degrading biological matter. In addition, poop runoff is a problem at lower elevations — to the degree that it’s contaminated the local watershed. Melted runoff pollutes drinking water, making climbers and non-climbers alike sick. Basically, Mount Everest is covered in human feces. It's a problem that hikers, sherpas and local officials have been complaining about for years. The issue with leaving excrement on the mountain, besides it being unsightly, is that it can contaminate the supposedly pristine snow and glacier ice of the landscape. But now, according to CNN, new “poop rules” are in place. If you want to climb Mount Everest from Nepal (the most common entryway), you gotta take your crap back with you instead of leaving it on the mountain. Hikers, who are already paying tens of thousands of dollars to climb Everest, are now required to bring with them two bags for their poop, each of which can be used for six bowel movements. When you put poop in the bag, officials say, chemicals inside cancel out the smell and make the poop solid. "The only good part about the human waste situation above Base Camp is that poop freezes fast at 8,000 meters," Everest guide Adrian Ballinger told CNN. "Beyond that, it’s an inexcusable embarrassment. If you walk from one tent to another in Camp II or IV, you will step in poop. If you melt snow from the camp areas to drink, you are drinking poop." In other words, it's high time wealthy tourists bring their crap back with them. No crap!

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An Evening With Bill Bronchick. Bill will be visiting us from Denver, Colorado. Bill is the President of the Colorado Apartment Owners Association and an expert on creative financing.?The topic for Bill’s presentation will be “How to Buy Properties Without Banks, Credit, and Little or No Down Payment." A long title, but very significant subject. I saw Bill speak on this topic at the Los Angeles Apartment Owners Association in LA convention Center last summer and thought it was fantastic.?So I convinced him to do it again for us. Thursday night, April 11, 2024, 6:30 to 9:30 pm. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission.?Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

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Vendors Expo Returns!?Our world-famous, super-duper "Vendors Expo" returns on Thursday night,?April 11, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Stick around after and enjoy our guest speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034.?FREE Admission.?Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

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Basic Training Investing Boot Camp. Saturday, April 27, 2024, 9:00 am to 6:00 pm, will be our semi-annual Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Iman Cultural Center, South Hall, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.The cost of the Boot Camp is $149.00 per person if paid before April 20. After April 20, the price jumps to $1 million! So don’t wait to register. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) You can register at LARealEstateInvestors.com.?

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This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy, specifically rate cuts. For economic reports, by far the most important will be the Consumer Price Index (“CPI”) to be released by the Bureau of Labor Statistics on Wednesday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. The detailed minutes from the March 15th Fed meeting also will come out on Wednesday. Import Prices from the Bureau of Labor Statistics will be released on Friday.

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Weekly Changes:

10-Year Treasuries:???????????Rose??015 bps

Dow Jones Average:??????????Fell????100 points

NASDAQ:???????????????????????????Fell????250 points

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Calendar:

Wednesday (4/10):??????????????Consumer Price Index

Wednesday (4/10):??????????????Fed Minutes

Friday (4/12):???????????????????????Import Prices

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Lloyd Segal President

Los Angeles County Real Estate Investors Association [email protected]

310-792-6404

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